How can I protect my children’s inheritance with an estate plan?

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By: Bill Henry
PublishedNov 8, 2022
1 minute read

The process of getting a divorce can be rife with stress and painful emotions. However, it can also be a time for renewal and a fresh start. This is quite literally the case when it comes to what to do with your estate plan during or after a divorce. In fact, the recommended first step in updating your estate plan following a divorce is to revoke the old will by shredding or tearing it up and creating a new one.

Each divorce and estate plan is unique and may be subject to exceptions or special considerations depending on the circumstances. You should work with both your divorce attorney and your estate planning attorney to ensure you don’t miss anything and that any changes you make are in line with the law.

If you get remarried, there are several ways to protect your assets from future divorce or upon death. You can also take steps to ensure certain assets go to your children.

Creating a trust is one way to ensure children receive specific assets from a biological parent who is remarried. Establishing a trust allows you to set aside specific assets for a specific purpose, as well as designate management of those assets to a trusted third party. Additionally, a trust may enable you to initially pass property to your spouse, with directions to then give it to your children upon your spouse’s death.

The transfer of assets can take place immediately after you die or after your spouse has used the income from your assets during their life. Perhaps the assets are available for your spouse and what your spouse hasn’t used flows to your children. Careful consideration of these issues is important to prevent hard feelings between your children and your spouse.

If you hold assets together with your new spouse, how can you ensure things are divided fairly between families? How do you ensure the assets you’ve created together are protected if you die and your spouse gets remarried? Who will have control over the division of assets and how is self-dealing or the perception of self-dealing avoided?

There are many issues to be discussed and decided when planning how your estate is going to pass to the next generation, especially when you’ve survived a divorce or remarried to someone who may or may not have children. These issues are manageable if you discuss them with an attorney with relevant estate planning experience. A little planning can go a long way to prevent hard feelings and avoid conflict. It is easy to procrastinate, but generally the price is high.

Unless you’ve adopted them, your stepchildren have no automatic inheritance rights. If you don’t want to leave your stepchildren anything in your will, you don’t have to. However, if you do want to leave your stepchildren any part of your estate, you’ll have to name them in your will.

You cannot disinherit a spouse in Colorado. Under Colorado law, your spouse is entitled to receive an elective share of your estate. Colo. Revised Statutes § 15-11-202

The elective share is a percentage of an amount called the augmented estate. That percentage increases with the length of the marriage, up to a maximum of 50 percent. Colo. Rev. Stat. § 15-11-203 (2014)

The augmented estate is the sum of the value of all property from:

  1. the deceased spouse’s net probate estate
  2. the deceased spouse’s non-probate transfers to others
  3. the deceased spouse’s non-probate transfers to the surviving spouse; and
  4. the surviving spouse’s property and non-probate transfers to others.

All of those property values are calculated based on their fair market value as of the deceased spouse’s date of death. Beren v. Beren, 2015 CO 29, ¶ 1, 349 P.3d 233, 235

A marital agreement can offer security and manage expectations by specifying who gets rights to what property in the event of death or divorce.

There are two types of marital agreements: prenuptial agreements and postnuptial agreements. A prenuptial agreement is for couples who are intending to marry and are looking to resolve any financial issues during and upon potential death or divorce.

A postnuptial agreement happens when you are already married. These agreements can also be suitable for couples who feel that a change to current circumstances warrants a marital agreement, such as:
  • a spouse receives a large inheritance
  • the creation of a business
  • a change in liabilities for either or both spouses

In Colorado, a divorce decree automatically revokes your ex-spouse as a beneficiary or fiduciary in any will or trust. This means that, unless you update your documents (including beneficiary designations on any life insurance policies or retirement accounts), your assets will go to the named contingent beneficiary instead. 

This rule extends to any appointments that name your spouse as your personal representative/executor or power of attorney.

No. In fact, it’s wise for spouses to revise their estate plans while their divorce is pending. Here’s why: Colorado law only automatically revokes a designation of a former spouse as a beneficiary or a fiduciary in a will after a divorce is final. If you pass away before the divorce is final, then your assets could still go to your spouse, that you’re divorcing, unless you update your will to designate other beneficiaries.

It is, however, important to consult your divorce attorney before making any changes to your estate plan. When one spouse files for divorce, a temporary injunction goes into effect that prevents both spouses from transferring, encumbering, concealing, or disposing any marital property without the other spouse’s consent or a court order.

If you still want to include your spouse in your will as a beneficiary, fiduciary, or power of attorney, you will have to re-insert them into your will after the divorce is final.

It’s correct that the law says if you pass away before your children are 18 and your ex-spouse (the other biological parent) is still alive, he/she will become their sole guardian. If you believe your ex-spouse is irresponsible, abusive, or otherwise an unfit parent, you should attach a memorandum to your will explaining these reasons. You can also include any police reports or court records that corroborate your opinions. This type of information is useful for the court. 

You should, of course, also name in your will the person(s) whom you wish to act as guardian(s) for your children should anything happen to you. This is something you should do regardless if you want your ex-spouse to have sole guardianship. Whomever you name will be considered for guardianship if both you and your ex-spouse die before the children are 18.

Ideally, you and your children’s other biological parent will name the same person(s) in your wills to avoid fighting amongst family members in the unfortunate event that both of you pass away. However, if you and your ex-spouse can’t agree on a guardian, it’s important to consult with your divorce and estate planning attorneys about how to best approach the situation. Remember that these things, no matter how uncomfortable they are to talk about, are best handled while everyone is alive and well.

Although your ex-spouse loses many rights to your estate after you divorce, there are pitfalls you’ll want to avoid.

Often people set up a trust-based estate plan rather than a will-based plan. They may do this to avoid probate, ensure someone can act on their behalf if they become incapacitated, or to protect assets for their descendants.

When trusts for your children are established either in advance or through testamentary trusts, the legal guardian of a child can act on that child’s behalf.

The child may have certain rights as the beneficiary under the trust. For example, these rights may include the right to remove and replace a trustee. You are unlikely to appoint your ex-spouse as the trustee of your trust. However, if your minor beneficiaries have the right to remove and/or appoint trustees under your trust document, your ex-spouse as the legal guardian of the child-beneficiary may be able to remove and replace the trustee you put in place. Who would they choose? This is not something most people want to happen. The rights of minor beneficiaries under any estate plan needs to be closely examined.

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